Remuneration of Directors holding special offices

At the time of their appointment or at the first meeting thereafter, the Remuneration Committee proposes the remuneration package for Directors holding special offices to the Board of Directors.

The remuneration package of Directors holding special offices and who have been assigned specific functions consists of the following elements:

  • a gross annual fixed component;
  • an annual variable component that is based on the achievement of pre-set business objectives (i.e. MBO), part of which (50%) is deferred; of this part, half is not subject to fulfilment of the LTI Plan targets (deferred MBO), the other part is instead subject to them (co-investment LTI)
  • a variable medium-long term component (i.e. LTI).

At the time of their appointment, the fixed component for Directors holding special offices who have been assigned specific functions is approved by the Board of Directors for their entire term, in an aggregate annual amount that also takes the other positions they hold at the Pirelli Group into account. The remuneration package of Directors holding special offices and who have been assigned specific functions is determined on the basis of the following criteria:

  • the fixed component represents no more than 50% of the target-based annual total direct compensation;
  • the (annual) target-based MBO is a pre-determined percentage of the fixed salary for their principal executive position (in the case of Mr Tronchetti Provera, the position he holds at Pirelli Tyre), which is generally not less than 100% of that compensation. In any case, the maximum bonus cannot be more than 2.5 times of that compensation;
  • the medium-long term, variable, target-based, annualised component (LTI) represents at least 50% of the aggregate variable component (target-based MBO and target-based LTI Bonus). The “pure LTI Bonus” is also subject to a cap, in the amount of 1.5 times the targetbased bonus.

In 2012, the structure of the remuneration paid to the Chairman and Chief Executive Officer (Mr Marco Tronchetti Provera) was modified following his waiver of a significant portion (about 20%) of the gross annual fixed salary set for the positions he holds, while attributing greater weight to the variable components.

In particular, the fixed component was adjusted until the end of his term as follows:

  • for the position held at Pirelli & C., a fixed gross salary of euro 900 thousand was set, in addition to his compensation as member of the Board of Directors (euro 50 thousand gross);
  • for the position held at Pirelli Tyre S.p.A., he was granted a fixed gross salary of euro 2 million and variable compensation, based on the criteria described above.

In regard to the impact of the various components of the compensation package, if the annual targets envisaged by the MBO 2012, 2013 and 2014 and the targets set by the 2012-2014 LTI Plan were fulfilled, the structure of the target-based annual total direct compensation of the Chairman and Chief Executive Officer during the three-year period would be as follows:

  • fixed component: 40%;
  • total variable component: 60% of which:
    • annual (MBO) 23% of the annual total direct compensation (equal to about 38% of the total variable component);
    • medium-long term (co-investment LTI Bonus and pure LTI Bonus) 37% of the annual total direct compensation (equal to about 62% of the total variable component).

The following graphic shows the comparison between the breakdown of the target-based annual total direct compensation over the three-year period before and after modification of the remuneration package described above.

 

ANNUAL TOTAL DIRECT COMPENSATION TARGET 2011 - 2013

 

ANNUAL TOTAL DIRECT COMPENSATION TARGET 2011 - 2013

ANNUAL TOTAL DIRECT COMPENSATION TARGET 2012 - 2014

ANNUAL TOTAL DIRECT COMPENSATION TARGET 2012 - 2014

Key:
BS: fixed component;
STI: annual variable component;
LTI: medium-long term variable component

 

If both the annual and three-year maximum targets are achieved, the structure of the annual total direct compensation during the three-year period would be as follows:

  • fixed component: 23%;
  • total variable component: 77% of which:
    • variable component based on annual results (MBO) equal to 32% of the annual total direct compensation (equal to about 41% of the total variable component);
    • variable long-term component (co-investment LTI Bonus and pure LTI Bonus) equal to 45% of the annual total direct compensation (equal to about 59% of the total variable component).

The following graphic shows the comparison between the breakdown over the three-year period of the target-based annual total direct compensation in the event of fulfilment of both the annual and three-year targets before and after modification of the remuneration package described above.

 

ANNUAL TOTAL DIRECT COMPENSATION MASSIMO 2011 - 2013

 

ANNUAL TOTAL DIRECT COMPENSATION MASSIMO 2011 - 2013

Key:
BS: fixed component;
STI: annual variable component;
LTI: medium-long term variable component

 

ANNUAL TOTAL DIRECT COMPENSATION MASSIMO 2012 - 2014

 

ANNUAL TOTAL DIRECT COMPENSATION MASSIMO 2012 - 2014

Key:
BS: fixed component;
STI: annual variable component;
LTI: medium-long term variable component

 

For more details in regard to the incentive plans, please refer to section 5 “MBO and LTI Plan.”

For the Directors holding special offices and assigned specific functions (at December 31, 2011, the Chairman and Chief Executive Officer, Mr Marco Tronchetti Provera), if they are not bound by managerial employment relationships, the Board of Directors has envisaged, analogously to what is guaranteed by law and/or the National Collective Bargaining Agreement in favour of the Group’s Italian managers:

  • a Retirement Bonus (“Trattamento di Fine Mandato” - TFM) pursuant to Article 17(1)(c) of the Consolidated Income Tax Law (“T.U.I.R.”) no. 917/1986 with characteristics similar to those of the Employee Benefit Obligations (“Trattamento di Fine Rapporto” – TFR) pursuant to Article 2120 Italian Civil Code, granted by law to the Italian managers of the Group and including the contributions to be paid by the employer which would be due to social security institutions or funds in the case of a management contract with the Group.
  • a policy (i) against personal accidents they might suffer while performing their official duties and (ii) accidents unrelated to work with the premiums charged to the Company; for the latter accidents, the associated social security and tax charges are paid by the Company;
  • benefits for permanent disability and death due to disease;
  • additional benefits typical of their office and currently granted within the Group to Key Managers and/or to Senior Managers (company car)

If the Director holds special offices but has not been assigned specific functions (at December 31, 2011, this was the case of the Deputy Chairmen Vittorio Malacalza and Mr Alberto Pirelli), their remuneration as Directors consists solely of the annual fixed component. If the Director holding a special office is also an Executive (Mr Alberto Pirelli), his remuneration is determined on the basis of the criteria envisaged in the Policy according to the position held. This part too is subject to examination by the Remuneration Committee and the Board of Directors.

No insurance, social security or pension coverage other than mandatory coverage is envisaged for Directors holding special offices who have not been assigned specific functions.

According to Group policy, discretionary bonuses are not paid to Directors holding special offices. On proposal by the Remuneration Committee, the Board of Directors may grant bonuses to these individuals in relation to specific transactions that are deemed exceptional in terms of their strategic importance and impact on the results of the Company and/or the Group. The Directors holding special offices have not been granted bonuses of this type during the past three years.

The Remuneration Committee and the Board of Directors analyse the position, composition and competitiveness of the remuneration paid to directors holding special offices. They perform these analyses with the assistance of independent firms specialising in executive compensation. Within the typical limits of benchmark analyses, these firms use methods designed for thorough assessment of the complexity of roles in organisational terms, the specific functions assigned to them, and the impact of individuals on final business results.

In particular, different parameters (sector, geography, dimensions, etc.) are used to define the annually updated panel of benchmark companies.

The benchmark sampling used to revise the remuneration of the Chairman and Chief Executive Officer of Pire - lli & C. in 2012 was comprised of eight companies in the auto parts and tyre segment, on the one hand, and by 27 European “large cap” companies, on the other hand.